Chipotle flagged immigrant worker audits last year

Reuters Staff

4 Min Read

* Annual reports convey immigration enforcement risks

* Analysts expected to query Chipotle in earnings call

By Lisa Baertlein and Mary Milliken

LOS ANGELES, Feb 9 (Reuters) - Chipotle Mexican Grill Inc (CMG.N), in the midst of a widening federal crackdown on its its undocumented work force, warned investors a year ago that it was subject to immigration audits and that it may be employing workers in the country illegally.

In what may prove to be a prescient statement, the Wall Street darling also said in its 2009 annual report that the discovery of a large number of of unauthorized workers could disrupt operations and harm financial performance.

“We have been subject to audits by immigration authorities from time to time,” the high-flying burrito chain said in its 2009 annual report filed in February 2010.

The company was not immediately available for comment on Wednesday.

Chipotle reports fourth-quarter earnings on Thursday and analysts said there may be questions about the impact of the ongoing probe by U.S. Immigration and Customs Enforcement, known as ICE.

So far, Chipotle has been forced to fire hundreds of its 1,200 employees in Minnesota and the company told Reuters last Friday that a federal immigration probe has widened to Virginia and Washington, DC. [ID:nN04224441]

Chipotle’s share price has jumped from under $40 to around $250 in just over two years as investors bet on big expansion plans and a business model built around its motto “Food with Integrity.”

RISK LEVEL ‘TICKED UP’

The richly valued stock faces pressure from rising food costs and now immigration concerns are creeping into analysts’ outlooks.

“At this point, the risk level for the stock may have ticked up to some extent, as the company has received notices of inspection from ICE ... for its units in Minnesota, Washington DC, and part or all of Virginia,” Janney Capital Markets analyst Mark Kalinowski said in a client note on Wednesday.

He still has a buy recommendation on Chipotle, however.

While changes to immigration policy are putting the restaurant industry in the spotlight due to its reliance on immigrant labor [ID:nN07587199], Chipotle’s disclosures suggest it was more attuned to the risk in past years than its key competitors.

A Reuters review of Chipotle’s recent annual reports and those of other major publicly traded restaurants found that the Denver-based Chipotle went to greater lengths to outline potential risks.

Among other things, Chipotle’s comments include: “Although we require all workers to provide us with government-specified documentation evidencing their employment eligibility, some of our employees may, without our knowledge, be unauthorized workers.”

Shares in Chipotle were up 3.3 percent, or $8.20, to $255.46 in midday trading. (Editing by Dave Zimmerman)